>> we have a government here that lacks economic stability. >> what will stop the problem if not the bank of england? >> this is "bloomberg serveillance: early edition" with tom keene, jonathan ferro and lisa abramowicz. jonathan: good morning, good morning. this is "bloomberg surveillance. i'm jonathan ferro.

futures up 10%. the close yesterday, a new low for 2022. tom: you said turnaround tuesday, that does capture. combining different asset classes and different ideas here as more to follow. bloomberg radio, same thing, more to follow. jonathan: the high, 9.31. that is quite a range. tom: guess what, folks, the pros are really looking at this volatility. one idea to look at is the real yield. you are familiar with that, this is what all the adults follow. the inflation-adjusted yields. this is stunning, stunning, stunning. 83% back from that run to the

average before the great financial crisis of 2.05%. most of that has been done in the last three cups of coffee. jonathan: that is a couple of days of the yield curve in the u.k.. 100 basis points, something close to that? lisa: 50 basis points every day, showing that the five-day increase has been the most on record going back to 1979. the reason why today's reset, today's pause is interesting is because we are seeing not only in stocks and the risk assets, but we are shooting for more investors, that it starts to look attractive with real yield. goldman sachs tried to coin the phrase. there is a reasonable alternative. jonathan: when you say people

are getting more instructive, i know where you're going on this. it is in the bond market, not in stocks. lisa: exactly right. however, yesterday's auction was actually really messy. tom: i don't understand. lisa: there wasn't as much demand relative to what they were offering as people had expected. in other words, the individual investors were not taking down as big of a share. that raised some concerns. jonathan: need to catch up? tom: it is a store times. i want to emphasize this is the global condition. we are not just focus on sterling. there's other currencies.

jonathan: futures up. eight or nine basis points. it is basically the last couple of days upside down. >> upside down, but not necessarily at the same magnitude. lisa: jay powell, conversation christine lagarde and of course, st. louis and minneapolis, what are they all going to say that is going to change the perception?

basically health in the market, strength and resilience. the chief economist from the bank of england is going to be speaking today. we saw the stock going to act in an emergency kind of measure just yesterday. house price data at nine, and then send data at 10:00 a.m. housing prices, how much are we declining given the lack of volume? given this feeling that perhaps people are not as willing to pay these prices. i didn't mention yesterday the auctions and i regret it because yesterday's auction was actually working to markets moving. how much demand is there for

five year yield in the highest level to bring back financial crisis? jonathan: i find those charts to be absolutely amazing. through the pandemic and out the other side, almost vertically. lisa: i do wonder if we are looking at something that is a five year treasury yield or bitcoin. jonathan: thank you, looking forward to the auctions a little bit later. good to catch up. we are going to hear from the chief economist of the bank of england, not just fed speak. what do you want to hear from the chief economist? >> with got rates pricing in,

and i think it is a very tricky potential. they are not going to be rushing to hike rates, in part because they are not sure what that path is. tom: as american as you can get in academic economics, your stanford degree speaks volumes about looking at the market. can you represent the theory of the bank of england right now, or is the theory to make it up as they go? elsa: i don't know that they are making it up at the come along but they are looking at an acid jewish and in regards to the central bank policymaking. tom: i want to interrupt, this is so important. ronald reagan had paul ploeger

to raise hell. andrew bailey had the ability to straighten out the children, it is as simple as that. elsa: they are so tough at this stage. i think the last thing the bank wants at the moment is to get caught up in a political fight. lisa: as we were talking about a lower rate, how low can it go before the risk concern politically if not from a monetary standpoint? elsa: a lot of what we've seen has been dollar strength instead of selling weakness.

the pound is down about 5% year to date. i don't think that we really see the pound --. jonathan: because market pricing -- elsa: if the u.k. government has announced --, markets reacted as they have. jonathan: wonderful to catch up with you in london, as always.

some wild moods in u.k. markets the last couple of days. i found the bank of england statement pretty interesting, to be honest with you. only one part of it was interesting to me, and that with the second paragraph. they said they welcomed it. i welcome the government commitment to spending more economic growth and to the role in the office budget, economy and public. tom: i have seen it from bloomberg, from other media as well. this is only one precedent. i can't remember the exact date. to give an idea of how extraordinary we are right now, the bloomberg financial

conditions index of the united kingdom was very, very good but the ratio that some of the dynamics of any other given -- 5.2 standard deviation owes. this morning, still lofty, unstable 3.4 standard deviations and accommodation. that is what the government has to deal with. jonathan: looking forward to hearing from you pill a bit later. just to clarify, that is on currencies, not on the economy. tom: who is not speaking? is there anyone not speaking today? jonathan: i would like to talk them monetary policy maybe another time. lisa: i don't think he is going to be able to avoid it completely with christine lagarde there, too. how can they not talk about the strength of the dollar? how can they not talk about the

currency right now? tom: is then going to be on the crypto show this afternoon? lisa: guys, what are you doing? why do we care? my brain is going digital. jonathan: futures positive 8/10 of 1%. in new york, this is bloomberg. lisa: keeping up-to-date with news from around the world, threatening to become the worst storm to hit tampa and more than a century. it will take up strength and is now a powerful category three storm. it can reach lane as early as 1:30 with pop wind of wonder 40 miles brower read people are expected to evacuate. the british pound is higher

today after a near record low on monday. still, sterling could fall. the bank of england indicated it may not -- to stem the rise and currency. natural gas from russia to germany won't resume this winter. the operator says it has sustained unprecedented damage. markets will be watching for any indication of sabotage. at least one major investor thinks the worst global bond run in decades is creating a opportunity. the cofounder tweeted that he has been a buyer of treasuries recently. the fed has delivered the steepest interest rate hikes in a generation. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg.

♪ >> -- policy -- protection.

inflation as follows. jonathan: rinse and repeat. susan collins live from new york. -- susan collins. live from new york, the yield -- lower. very, very close to looking at 4% on the u.s. 10 year. they euro just about showing 2/10 of 1%. tom:tom: this is a joy. this midterm election as we begin to look toward certain coverage in washington, it is good to speak to someone with decades of experience who has an exceptional ability to go topic by topic.

thrilled to catch up with you at this moment as well. there is a shut down, there's not going to be a shutdown, everything else the network is talking about. i want to know what the senator of west virginia does that the republicans take the majority. does he switch over to the republican party? >> chris whalen sends his readings from last night. there is not the most remote possibility of a shutdown at this point. joe manchin is already telegraphing his pathway to a graceful retreat. he does not have the votes to pass this bill. tom: is it imaginable on the first wednesday of november that comes a republican to give them a majority?

>> know, it's not remotely likely. he is an lbj greek society democrat. he is just not necessarily a new wave progressive democrat. increases -- and will not switch. now, the problem is he is almost unchallenged in west virginia. he is currently pulling behind alex mooney, the congressman. he does not have a path to reelection, i think.

tom: lisa: lisa: let's talk about the path for president biden heading toward the midterm election. we have seen gasoline prices bottom out. and yes, biden coming out and saying to continue to lower prices. how much is that going to play well heading into the midterms as gasoline prices are not necessarily at the or front in the same kind of way? james: you've got the bigger problem of economic chaos for consumer perceptions and the fed cracking down, all of us undermining the economic message which is really powering biden forward from early on. biden has had a great september. i feel that his timing was a little too early and this

combination of economic worry, oil prices going down now largely because of the fear of recession, you still have people facing significant problems. that is also very important for democrats, like for working-class hispanics. lisa: this is really important, especially given the fact that a president biden spokesperson came out yesterday. to your point, do you expect a more aggressive elizabeth warren-type line from president biden with respect to questioning the federal reserve and its actions heading into the midterms? james: i'm not sure that the white house can challenge the fed.

but the real bury the fine crew has to have that we are in a recession. i think the senate did go either way. the democrats hold the majority. if democrats do well on the selection, if you have a recession, they do not need to worry about it going into shut down now. reelection cycle, i think next year is the time to worry about shutdowns. jonathan: fantastic to catch up with you, sir. you've got to explain this one to me. what does it mean when the white house says we are watching markets carefully?

tom: it means they have bloomberg. jonathan: they have seen it. tom: lots of bloomberg. lisa: is there an action that comes along with watching, or is it down? jonathan: it only means something if you have the willingness to do something. when the bank of england says something like we are watching it, you get the feeling it mean they might do something about it. lisa: even the bank of england, people question what that meant as well. they said if you are going to ask, why are you basically reaffirming that there might be some credence to this potential policy? jonathan: i'm not sure whether the white house press secretary have the same thing to maybe cut interest rates in the future at some point. anyway, you got to explain this one to me as well.

the headlines about how damaged nord stream 1's. i have to say, trying to work out where the damages coming from, they have said that they can't determine the cause just yet. it's kind of bizarre this morning. lisa: the whole thing is. are they telling us that someone sabotage this, or do they just not know? jonathan: no idea. they are saying we will condemn any active sabotage. lisa: if it happens. jonathan: futures up 1% on the s&p. we start to close with below at 2022. from new york, this is bloomberg.

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jonathan: welcome back this tuesday morning, price action in the equity markets. futures up higher, positive on the s&p, the nasdaq up 1.39%. on the s&p 500, closing lows since december 2020. the bond market, similar story, last couple of months upside down. the two-year, after rising 13

consecutive sessions. just off a 2010 high on the 10 year. down 11 basis points. foreign exchange, a look at sterling which is back to 1.08. a high of 1.0931, a low of 1.0350. hard to keep up. in the united kingdom, the tabloid -- tom: page three. jonathan: honey, i shrunk the quids. tom: a quid is a pound? jonathan: it is. tom: right now, we are going to stop worldwide and have a conversation with the definitive expert on e.m.. withstand new -- stanley

fischer, this is a guy where damian sassower of bloomberg hangs on every word. mark mobius was a communications major years ago and basically invented for sir john templeton the emerging-market business. we are honored mark mobius is joining us from dubai. let me cut to the chase. how close are we to the instabilities of 1998 or 1992? mark: i think we are very close. we are in a really strange situation because on the one hand there is an incredible increase in money supply. my definition of inflation is devaluation of currency. that's what we -- where the devaluation of the money will be and where the prices will go. we are in a strange situation because we have cryptocurrencies

and here in dubai, so many people are transferring money in cryptocurrencies and if you look at the emerging-market it is ridiculous. nigeria with a tremendous amount of turnover in cryptocurrencies. it is money supply, that is the big question. tom: we were at the waldorf-astoria eight years ago and you stuck your neck out and said baloney that the rules of change for e.m. there is this conceit right now that e.m. is more financially solid, e.m. has their act together unlike 1998. do they? mark: it depends on the country. the great thing about emerging markets as we see such variety. some countries are doing hatred of -- a terrific job. brazil has been doing a good job stabilizing the economy. then you go to taiwan and indonesia, they've been doing a good job in managing their economies.

it really depends on where you go. if you go to turkiye, you have the massive devaluation of the turkish lira and a lot of instability financially. lisa: mark, at this point, you started by saying there are analogs to 1998 that we are getting close to. what is the dividing line between now and then, the trigger point that makes this devolve into something that needs to immediately be addressed rather than a rapidly evolving ball of pain? mark: the real situation now is that unlike the past during the financial crisis is that -- is not as big because a lot of these countries learned their lesson, it was not a good idea to get into dollar debt. a number of countries that have been devolve -- evolved in the

belt and road projects where they gave a lot of money to these countries they cannot pay. you have to note the differences between countries and in some cases, we are closer to the asian financial crisis. lisa: i'm glad you brought that up, the belt and road initiative of china which by some accounts has significantly soured. a report was published that nearly 60% of china's oversee loads are held by countries expected to be in financial success. it has raised big concerns for china which is acting more like a banker than the imf when it comes to these loans. how does this devolve into something that could have contagion effects and markets? are there countries that will be flat on their backs, unable to pay their bills? mark: a number of countries have

duration. i was in sri lanka and they are flat on their backs, can't pay and they are the chinese so much. -- they owe the chinese so much. nobody really knows what the numbers are because china has told these countries they cannot disclose. we are in a tough spot and if you talk to the imf, they are unhappy. tom: i've got a fancy chart, really fancy chart. it is a very weak extrapolation of how we get to a plaza cord. -- plaza accord. i don't buy it with the rates of change, first and second derivative dynamics. how close are we to having a beverage of our choice at the plaza hotel? mark: this is an interesting question because here you have the dollar so strong and prices

in america are not down. i just looked at the one-month shift all over america and people are spending like crazy. then you have london, the pound devalues against the dollar by 30%. trying to find a hotel in london below 300 or 400 euros or pounds, it is crazy. that's why i say, we are in a situation where nobody really knows what the money supply is. i believe a lot of this is because of the crypto world. jonathan: i'm guessing you are looking for a different kind of quality hotel compared to many of us. times are changed. inflation. mark: at the chain of hotels, and at the u.s. i checked into a marriott.

if you want made service, i said -- they said we don't give made service unless you ask for it and it's only ever needs -- every seven days. jonathan: i wanted to bring up raphael bostic of the atlanta fed, on the u.k. he was basically asked about what was happening and whether -- the odds of a global recession and he said it doesn't help. i wonder what the rest of the world would like to say back to the federal reserve. the federal reserve and an aggressive rate hike and stronger dollar is a bigger threat. lisa: that's a perfect segue into what you are looking for in terms of the distress you are focused on for some sort of response from the fed, a concerted effort like tom was talking about. is there a cap on how much pain there can possibly be? is there a trade you are looking at? mark: i don't think the fed will

care about the markets. they care about inflation. there playbook is to keep on raising rates until the weight -- this means you are talking about 9%. interest rates are 8%. if you look at the u.k., they have been re-boosting money supply. the u.s. money supply does not seem to be going down much. in a situation where the playbook for the fed is going to continue raising rates and the markets are just going to have to live through it. let's be reminded, high rates don't mean a bad market. in many cases in history, the rates were high but we had a good bull market. we have to watch carefully. jonathan: mark mobius, great to catch up.

mobius capital partners. i want to talk about why a fed pause and whether that is bullish or not, should be questioned. the issue i have with this fed pause is the only thing hiking and not cutting, if the fed pauses we have to look what the economy will look like. if the fed stops hiking as to -- compared to what it traditionally does, i struggle to see how that would be bullish. tom: this is original territory led by a massive fiscal shock from a natural disaster. still dealing with it and what you will see, and you heard it from charles evans this morning and i'm sure we will hear it from others, look for hedging on tober. hedging november -- hedging october, hedging november. the certitude of august will drift away. jonathan: what i heard from

charles evans was the hope that unemployment only goes to 4.5% and we don't get a recession. that is still a pretty decent move. lisa: people losing their jobs, not a comfortable position to be in. the hope with the fed pivot comes down to the economic data cooperating. if we get enough acceleration in inflation from crossover effects or whatever the case may be, normalization, save for that, you are right. a retracement would have to come on the heels of significant pain that some people argue has not been priced in. jonathan: jp morgan, i'm not going to say he's bearish. it is a sort of drumroll. i will give you the first paragraph and save the second for later. lisa: you can't do that. jonathan: it is a tease. "rising risks the fed engineers

a recession, while we remain confident a softening and labor markets is in the pipeline, we are less confident the central banks will pause." find out if he is bearish, next. futures up 1% on the s&p. this is bloomberg. lisa: keeping you up-to-date with news from around the world, hurricane ian has turned into a powerful coward gory three storm in florida -- categories three storm in florida and is set to become the worst storm to hit tampa in centuries. it could arrive on wednesday with wind up to 140 miles an hour. a meeting between the chancellor of the exchequer and top british financiers could be difficult since he introduced his many budget. the pound has plunged and shares in british banks and insurers have been battered. those attending will want

answers. president biden is repeating his demands for oil companies to charge less. at a meeting of the white house competition council, the president said the price of oil worldwide was down but "we haven't seen the lower prices reflected at the pump." gasoline prices have fallen by more than a dollar since hitting a peak of more than five dollars a gallon. goldman sachs and blackrock are turning more bearish on equities and both warned the markets are yet to price in a risk of a global recession. global -- goldman cut equities to underweight. blackrock is advising investors to sean most stocks. global news 24 hours a day, on air and bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> we expect to raise interest rates further over the next several meetings to deal with demand and guard against the risk of a persistent shift and explain should -- inflation expectations. i cannot bring the price of gas down. i wish i could. maybe you could reform electricity and it would help more. this is not for me to do. jonathan: a strong suggestion from christine lagarde, ecb president. the equity market, a bounce back off the lows of the year, the s&p 500 positive one full percentage point.

the second part of jp morgan's follow-up, i promise. preconditions for the market bottom have fallen into place, increasing -- increasingly cheap and falling into distress. interesting how the tone of some of these notes from the big bowls have change it -- big bulls have changed. tom: they are waiting for october 14 when the earnings season clicks in. it is not about this coming q3 and q4, but about what happens early next year. there's a fair amount of gloom. here's my opinion, selected group, deutsche bank hydrocarbons and edward morris at citigroup absolutely nailed the 30% decline from the panic of 120 -- down to -- is that the

call of the minute. stephen schork, we are going to wander down to this range. what are the ramifications if it continues to drive lower? stephen: we are still at a level, looking at oil in the high to mid 80's. it is the sweet spot where the prices are high enough to attract investment and not so high that it is going to choke off demand on the consumer. we are now testing an area mid to high 70's. this is the low-end of our limit of a mild recession scenario. the united states economy, global economy is in recession and we are seeing that pullback

from the energy markets. the concern is if jay powell succeeds in what he's trying to do, halt inflation, he can send the united states economy into a tailspin and the global economy will follow. tom: that's great, right where i want to go. what's the history of central bankers intruding into macro demand that affects the high-growth -- hydrocarbon market? i don't see the history where they worry about a gallon of gas. stephen: they are worried about a gallon of gas from the standpoint that it is a driver, a key driver of inflation. take a kind of shot at lagarde and that previous clip and saying she wished she could control energy prices. does she wish she could control food prices? that is the other shoe that's going to drop on the economies next year, not energy. prices have fallen for 90

consecutive days. we are seeing that pullback in energy. what we are not seeing and what we are going to see, we are not seeing a pullback in food costs and because this harvest in the united states will be a poor harvest compounded by the lack of supply from ukraine, food inflation is the next shoe that drops. the fed has no choice but to choke off this demand and there and is the risk. if you go for a mild recession. tom: this is too gloomy. lisa, pick it up. stephen: i will make it super -- lisa: i will make it super cheery. sticky inflation, one area after another experiences a pickup in pricing so it perpetuates itself. does not lead to some scenario next year where you get serious

deceleration in inflation or does that mean we are looking at rates that have to stay high because inflation will be that much more persistent? stephen: absolutely. on both sides of the aisle, they are playing whack-a-mole when it comes to inflation. they attacked energy over the summer and hit that mold down. -- mole down. now food has popped up. the united states is committed to buying back all those barrels we withdrew from the strategic petroleum reserve. that's great, but u.s. producers gone into a deal with the government that they will start supplying at attractive prices that oil back to the spr. when it is time for the government to start buying back, they will be competing against u.s. buyers who are now producers selling to the government who should be selling to refiners. higher rates are here to stay. lisa: when we look at the u.s.,

it pales in comparison to the energy problems in europe which is why christine lagarde is hoping and wishing she had more control. are we properly priced for a winter in which no gas goes through nord stream 1? stephen: no, we are not. you have seen where we can go. natural gas in europe winter nearly the equivalent of 600 per barrel -- $600 a barrel oil. let's talk about what the e.u. did two years ago when they cut off the supply in the carbon market which drove markets 600% higher and natural gas 1800% higher. it is all perceived of what is happening in ukraine. the manipulation and that market set the course for a runaway natural gas and electricity market. that is being compounded by ukraine and what we are seeing

is nord stream 1 and the headlines of nord stream 2 as we are not priced in. it will be a very cold winter in europe and i don't think they are fully priced in. jonathan: stephen schork, many of you agree. gas prices up again and the most bearish case you could make for europe at the start of the year, a lot of people would argue it has materialized, nord stream 1. you could joke about the way this has been communicated. it is down going into winter. they managed to get storage to where they are likely to be ahead of time? david focus landau spoke to our team and the prospect of gas rationing and germany, -- in germany, they cannot afford to pay the bills. how much more will you see? lisa: how do you priced in

industrial stasis in the response to a lack of natural gas? it is hard to game out but it is -- if it is the base case, do people get out on that? we are seeing factories grind to a halt. tom: i did this the first time in the holiday season across central park, i looked at the low for berlin. it is a stunning 40 degrees fahrenheit in two days. jonathan: a meteorologist. futures positive 1%. this is bloomberg. ♪

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>> we have -- markets don't like brexit. >> the bank of england needs to step up. what will the problem is not the bank of england. >> they are more than extreme but explainable. >> the markets don't like the boe is doing. >> the world is heading into a recession. >> this is "bloomberg surveillance," with tom keene, and lisa abramowicz. jonathan: live from new york

city for our audience worldwide, good morning. live on tv and radio. futures bouncing back by more than 1%. yesterday upside down. tom: a historic take. damian sassower publishing and emphasizing the global nature. i get that, but this is a global event we are seeing in all centers around the fed speak. what we will hear from jerome powell. jonathan: what a session yesterday with the s&p 500 close to new lows since 2020 and the 10 year closing at a high since 2010. quite a story. tom: i dow 36,000 -- a dow 36,000 to 26,000, is not feasible? the vix is only 31. based on what you said i would

interpolate a 56, 57 vix. jonathan: have we seen that cathartic moment? tom: no. jonathan: have we seen it in sterling? darkest before the dawn? we think the low is in, from stephen gallo moments ago. a high risk of that low being retested in the next one to three months if the dollar turns. that's the call from stephen gallo, 75 basis points, a high risk of something close to 100, 125. tom: that makes sense. everyone's publishing will bring everyone -- everyone's publishing, we will bring everyone up to speed. thrilled darrell crown -- cronk visits us. jonathan: piling into cash. lisa: what counts as cash?

just the shortest term u.s. dollar representatives and instruments for somewhere along the curve? a consensus maybe it is shifting to buy 10 year treasuries more. jonathan: just about 2010 highs. pre-a missouri moving in that direction. lisa: we heard that yesterday from steve whiting at citi. this is the downward risk scenario. people expected in -- a reassertion and we are getting absolute -- actual yields. there is a reasonable alternative. i think it is beautiful. tom: stephen stood up a meeting and said, frankly, i don't give a damn. we were sitting on the couch upstairs talking about 1939, "

the wizard of oz," and "gone with the wind," and he is a giant fan. jonathan: futures on the s&p up a little more than 1%, the nasdaq up one point. yields back in, lower 11 basis points, 3.81. we talked about the weakness in the u.s. dollar, the strength of sterling, euro-dollar kind of bouncing back, positive .2%. lisa: there is no alternative. tara, who did tina? fed speak, loss of it. -- lots of it. president charlie evans, jay powell, and a bank of france meeting with christine lagarde to talk digital currencies, hopefully some other issues relevant to the market conditions. neel kashkari, mary daly, and

hugh pill of the bank of england, 9:30 a.m. eastern following some of the discussion. yesterday, the bank of england had come out with some sort of inter-meeting intervention. they did not. we will get more of a sense of what it will take for them to get in. a host of u.s. data on the housing data. home prices as well as new-home sales at 9:00 a.m. and 10:00 a.m. how much do we get retracement, actual declines as mortgage rates go up and people are less willing to buy houses? at 1:00 p.m., it is a treasury auction, $44 billion of five-year notes. yesterday, the auction was a bit messy. how much demand is there for five year yield? north of 4%. is this enough? is this a reasonable alternative

to going into stocks or the dollar? that will determine where people perhaps think the feeling may be at these levels. jonathan: worried about volatility as well, buying into a 50 basis point move. lisa: when you give -- get full faith and credit instruments moving so incredibly much it undermines confidence as to how much conviction. jonathan: darrell cronk joins us now, cio of wells fargo. this new consensus, value has been around a while. piling into dollar cash, what is the cash list to get a sustainable break of this surge? darrell: i think you will see a couple of things, peak fed rate hikes or somewhere at the terminal rate, or you've got to see a turn in the economic data.

otherwise, the u.s. dollar will be strong. it is still king dollar and as long as the rest of the world is weaker, money will wash ashore into u.s. dollars. what is interesting about the latest market move is so many times when you get down moves in the market, it finds itself in the credit markets, credit spreads. this time it is currency and the rate movement. a day like today where you are finally getting a bit back in risk assets because rates are not going higher and the currency markets have slowed down. tom: the religion of boston university finance is to know your underlying math, which is calculus and first and second derivatives. they are out of whack. when you see the rates of change of the u.s. 10 year real yield, we've never seen this. it has made back 83% of the

moves from the low to 2.50% average. how do you interpret and use the rate of change of the real yield? darrell: real yields are exactly where it is it. you are hitting on the exact right moment. chair powell has been clear they want to see the yield curve from a real yield standpoint in positive territory but we are not close to that. the pce deflator will probably be 4.8% of core, we are not at 4.8 percent or higher across the curve. we are not there at any moment in time in the curve whether you are one year out to 30 years. real yields have to go tighter or higher and the issue is the culmination, interest rate hikes, quantitative tightening, the u.s. dollar up 20% year-over-year, fiscal tightening from $3 trillion of budget deficit and real yields

going higher. that is tightening simultaneously. financial positions have gone up 345 -- conditions have gone up 345 points this year. lisa: what are you doing with this? darrell: you've got to stay defensive. that's now where everybody's at. we've been there since the first quarter of this year. we never believed the bear market rallies or every time the fed met there was a pivotal moment coming. you still have to overweight fixed income, underweight short duration. it is not time for high yield. underweight equities and stay in defensive sectors like health care, utilities, those places until things turn. until you see the signs turn or until we reach a price where the risk reward dynamic changes.

jonathan: a final question. we've played the fed pause about five different times this summer into the fall. what did people get wrong then that will help when we actually get a sustainable pause from the federal reserve? darrell: if you go back and read the prior fed meetings with the exception of september, march, may, june, and july, every single one of those the market interpreted as a dovish pivot. every single time they were wrong. we rallied, failed into resistance on the technicals and ended up at a lower point. you've got to take the fed at its face value. everyone is trying to read between the lines and think there is a dovish pivot. we are finally getting religion, off let -- a soft landing is probably not possible. the fed meeting hammered home the hawkish tilt and now the

u.k. is basically trying to redo the 1970's in the u.s. and do a soft landing with fiscal stimulus even with inflation risk, that doesn't work. we've seen that movie before. there are things you can do but you have to pay attention to what's happening. everyone's looking for that moment where times turned and the fed pivots and peak terminal rates are not there. jonathan: darrell cronk, always good to catch up with you. you are going to love this. tata. tom: you ever noticed that lisa gets 15 times the social response we get? jonathan: that's because lisa is lovely. tom: like we are not even here. jonathan: you know why. tom: somebody called tro, -- tiara, lisa puts it back on by

about 10:00 in the morning. it is humbling how we get crushed. how about buy low, sell high? lisa: i am just trying to hide, is it working. tom: one big watching -- walking hr violation. jonathan: futures up 1% on the s&p. this is bloomberg. lisa: keeping you up-to-date with the news from around the world, i am lisa mateo. hurricane ian has threatened to become the worst storm to hit tampa in more than a century and is now a powerful category three storm. it made landfall in cuba earlier in could reach florida as early as wednesday with wind up hundred 40 miles per hour. 300,000 people are expected to evacuate. the british pound is up after hitting a record low monday. traders remain wary that sterling could fall to parity

with the dollar. the bank of england indicated it may not act until november. it is the clearest signal ever that natural gas from russia to germany over nord stream 1 will not resume this winter. the pipeline's operator says it sustained unprecedented damage. markets will be watching for in mid to -- indication of sabotage. american steel rates are dropping. it is the lowest since january 2021 according to the american iron and steel institute. u.s. executives say mills need to operate at 80% for profits. a nasa spacecraft has successfully crashed into an asteroid. it was a test to see if the rocket could nudge the asteroid off course. if measurements show the asteroid's course was slightly

altered, nassau will consider it a success. global news 24 hours a day, on air and bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this bloomberg. ♪

>> i think what we've seen in the reaction to the proposed plan is a real -- of real concern -- a real concern and fear that it will add to the

economy. one thing i spend a lot of time thinking about is how do we create more certainty for consumers? jonathan: rafael bostic at the atlanta fed, kind of bizarre hearing fed officials talk about the u.k. being a risk of contributing to the global recession when the fed is doing what it is doing. futures positive 1% on the s&p, the nasdaq 100 up 3%. yields lower, -12 basis points on the 10 year. close to 4%. weakness after eight on of strength. -- after a ton of strength. sterling yesterday upside down. a 1.03 handle to 1.09 intraday is nuts. table 1.08.

just hearing from the chancellor speaking to financiers and we will have a credible plan to get that to gdp falling on the regulatory's -- debt to gdp falling on the regulatory side. tom: sterling not moving on it. i'm looking on the bloomberg and not seeing much. within this crisis, yesterday was a crisis. mark mobius was with us. bob diamond joins us to say -- barely describes what he did for barclays. did barclays get a bailout during the crisis? bob diamond, an honor to have you here. i'm going to ask one question because jon wants to focus on -- there is a comedy of reagan redux. how does citi move forward as

the global institution? bob: this is a really important question and i think with all the debate around the announcements made in the last couple of days, there is much more support for the citi. something as simple as removing bankers' bonus caps which was gamed by the banks and put the u.k. banks with a competitive disadvantage to u.s. banks. any support for the city is important. jonathan: what else would you like to see to bring the economy back to the city? it was lost after the brexit vote. robert: credibility is the key. simon french said this morning the only currency that really matters in the u.k. macro right now is credibility. i think the announcement earlier

today which i saw in the bloomberg headlines, the chancellor will spend time with the banks and traders and distributors of the gilt market is important. step one is credibility. if you put this in context, we had a $150 billion -- 150 billion debt-financed policy without preparing the gilt market for what was coming in terms of issuance. people talk about the currency crisis. this is more a crisis in the gilt market than the currency market. jonathan: can you talk more about what those moves in ranks would mean for a big bank in the books? certain banks removed certain products. you saw a large mortgage book at barclays. what do you have to do when rates move this quickly and the expectations climb? robert: if you put into context, the two-year gilt as recently as

august was about 1.5%. right now it is about 4.25%. i think it touched 4.5%. that's a sizable move. that kind of volatility is not necessarily bad for banks, particularly banks with investment banking operations such as barclays. it will slow down the issuance of new mortgages. the mortgage books in terms of new issuance, it will be as you said, there was the announcement that a number of banks have closed. lisa: it will slow down the economy dramatically. what do you expect in a downturn of response from england, given the fiscal tool is being blown up and the bank of england has to push back? robert: let's keep it in context. i think the communications and credibility around announcing 150 billion debt-financed energy

policy, we talked about that. the other things announced, there are some good things. the announcement around corporate and personal taxes, keeping corporate taxes at 19% or lower, rather than raising them to 25%, puts u.k. in a credible position amongst its peers. announcing some easing of immigration to ease the labor supply issues, some of the things that were announced around infrastructure or reducing the bureaucracy to be able to build around infrastructure and housing. keeping it in context, some positive things were announced. because of the shock to the debt markets and the gilt markets, we have to hold the hands of the markets until late november when the budget is announced. until we really get to look by what is meant by the medium and

long-term fiscal program. we have to manage our way through these markets. the chancellor meeting with the banks today and the next couple of days is a positive step. jonathan: do you see opportunities? robert: absolutely. jonathan: where? robert: within the gilt market? jonathan: sterling denominated assets more broadly. robert: people have talked about the currency crisis. the move from 1.30 down to where the currency is is about the dollar, dollar, dollar. the u.k. currency is down 25% or 30%. the dollar is up 20% against every currency so we need to keep that in context. jonathan: robert diamond, came very close to saying he would buy sterling and backed away quickly. good to catch up. coming up shortly, bill dudley.

futures right now up about 46 on the s&p, positive 1.25% on the nasdaq. more constructive take on some of the things happening in a more complete picture because the reaction is dominated by the way the market has reacted. tom: the banks are completely and every way data dependent including the bank of england which is not only data dependent but politician dependent. lisa: yields lower -- jonathan: yields lower 11 basis point. this is bloomberg. ♪

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♪ jonathan: equities positive. up more than 1% on the s&p 500. the nasdaq, up by 1.4%. that is the story in the equity market. you can get the story in the bond market. down 12 basis points. we have 13 consecutive days of a two year yield climbing.

now we are backing away. but what a change it has been. yesterday, the highest of a 10 year yield, just unreal in this bond market and in this fx market. sterling all over the place. cable, a little more than 1% positive. in europe, we are not out of the woods at all. lisa: no, it has to do generally with what is going on with natural gas prices. the latest concerns about specific banks. one bank in particular, credit suisse, has been in the world of hurt, share is sitting at record lows yesterday. this comes as a talk about possible assets and selling

businesses rather than just a wholesale merger or being hired. they are kind of running out of options. jonathan: we had a 3.98 today. there's all kind of speculation as to what we might hear. a strategic update, i think, next month. tom: we need to be careful what we say here. i would say what it comes down to is regulators in the united states. regulators staff in. is that happening? jonathan: i think we need to have that conversation. tom: really tough call. patient may be one, but wrong may be the other word. getting it done to extend. futures up 45. 31 point 03, a more constructive

day. always constructive, the gentleman from berkeley in the new york fed. the former fed president, he has had a ton of value before, during and after jackson hole. markets are moving. the litmus paper in the system, the 10 year real yield is gone from the bottom. 83% up to the pre-financial crisis level of about 2.05. how do fancy people like you interpret where the real yield is, how far the real yield has come, and how in the year it seems to be to a historic level? >> the fed is finally getting it wrong. chairman powell talked about the yield curve. shifting between that direction and 75 basis points, maybe 125 basis points.

the fed is catching up and i think the question at this point, will they stay the course? tom: the physics of modern economics, real-world applications. you did that and goldman sachs. i'm going to talk about the inertia force in the songbird overshoot. is it a requirement, or is it efficacious that a simple bank overshoot impacted the target? william: as you know, monetary policy has a lot of lag. i think the fed is probably going to ultimately be -- because they say that the risk

of getting too low is much greater than the risk of doing too much. more entrenched inflation, then you have to deal with --. these are the consequences of being late. if you are late, you have to catch up. look at the forecast last week. 4.4%. i don't think it is going to be quite so simple as that. 3.5% to 4.4%, a full-blown recession. the smallest situations, two percentage points.

what worries me about that is people will start to question the fed, not the volatility. lisa: this is the point of the collin euro today, that there seems to be some doubt in your mind and in market minds right now that the fed is going to --. what do you think they have to do to come out? do you think they are not going to, that they are going to put that the rate hikes above 4.5%? william: i think chair powell is going to stay the course. he knows the consequences of not doing enough. right now, it is easy to be tough because everybody wants inflation down. the market is still very strong. a year from now, when yield curves are higher and inflation has come down a bit, they will need to push inflation all the

way back to 2%. lisa: and how much is this going to be a political pressure on the fed? william: i think that buying the administration will be pretty good about. typically, if administration starts to take on the fed, -- even harder. i would be surprised. the left-leaning democratic party about how unfair this is. this gives us an alternative. the problem here is if you are late, you have to catch up. there are no other alternatives. better outcomes, they need to do what they need to do. tom: if they see services stabilized, goods come down,

this inflation or deflation that we saw pre-pandemic, i guess that means we come back toward john taylor's 2%. are you ready for 2.0%, or 10 bill dudley construct a new normal at 2.8%, 2.9%? where did you stand on that, built? william: -- more inflation. tom: i will go either way, i will let you make it up. william: that is like moving the goalposts because you cannot achieve the objective. i think policy breakthrough. that is unconditional. when the job starts to become more difficult. right now, markets are basically

stable anchors. but the process that is about to unfold has just begun. jonathan: that is the domestic thanks. the international banks we are witnessing right now. how do you respond to that? william: at the end of the day, monetary policy with the fed achieving its inflation, employment objectives, obviously this creates a lot of pressure on the rest of the world. increasing inflation, much, much tougher. jonathan: fantastic to catch up a former new york fed president and bloomberg opinion colonists. the question that bill is asking here, when he talks about the pain we are likely to see next year, for me, the next stage of

this market is what happens when we realize that that pain is happening and yet the fed is not cutting rates? and for the first time we could be in what many people may describe as a recession. they might pause, but they are not cutting rates. they are not responding to a market mess, the contraction of the economy. lisa: his point is the, really important. are some of the fed projections sensible in terms of the unemployment rate? in order to achieve the inflation rates, he is saying that the fact that there is more downside faith into what they are putting out there gives the sense that they haven't necessarily grappled with what they would do with rates if it is worse, if there is more pain in the economy then what they are putting out there, and that is why it is important for them to be transparent and honest about the downside.

jonathan: political pushback. is pretty easy to imagine we are going to see a lot more of that. tom: no question about it. bill dudley, the class tacky is, mentioned claudia, the great economist from michigan. some people will say claudia psalm should be the next chair of the fed because she is hardwired to the dynamics of the job economy. and the absolute, absolute debate we are having is between the late, great alan meltzer, ucla, carnegie mellon, and david -- of dartmouth. he went to the university of cardiff, i think, i can't remember. anyway, the point is meltzer wants to aggregate the economy, as we heard from dr. dudley, and they are saying this is a much more nuanced labor economy and that is the deal. jonathan: i had no idea. tom: i thought he was on the

club even at college. i looked for it last night, i couldn't find it. jonathan: you've got hulu. maybe disney plus. he struggling to find out? tom: i've got a scenic tv. -- zenith tv. lisa: giving you up-to-date, a powerful category three storm taking florida. and is now on track to become the worst storm to hit tampa and more than a century. hurricane conditions can arrive in florida wednesday, with wind

of up to 140 miles per hour. meeting today could introduce a budget on friday. british banks and insurers have been battered. those attending the meeting will want answers on how they can restore investor confidence. senate democrats have proposed a short-term funding bill. congress must past measured by midnight friday, to speed up energy permits. it is opposed by some republicans and democrats. leaders of both parties are anxious to avoid a shutdown in the more than a month before a midterm election. a sharply lower oil price forecast. they remain bullish because of a tight market. $100 per barrel in the last three months of the year. that is higher than today's price. the previous forecast of 125.

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♪ >> the bank of england has great synergy rates to small amounts. in terms of recession, stability. jonathan: the next bank of england decision, november 3. live from new york this morning, good morning. futures a bit higher, a little more than 1% on the s&p. let's call it 12 basis points, 3.8% on the u.s. 10 year. euro-dollar, 96.47, and ate a

turnaround in the last 24 hours on sterling. tom: a big turnaround, i am not sure we are there yet. but certainly it is a bit removed. there is no question about that. a little bit of kindness. can i suggest maybe charles evans this morning? jonathan: you can suggest what you would like to suggest, tom. tom: jon, i remember you telling me ryanair, on the irish, you said by it at three. and it went three to 18. that is what ryanair did. tom: did you buy it? tom: no, i didn't. it does so with one of the most extraordinary chief executive officers who has been medicated

over the last three days and joins us this morning. michael, jon and lisa have some very important british questions. i want to ask you what matters to every viewer listening right now. if we don't fly business class, we won't fly. it is the addiction to business class versus economy which you hold the high ground on. where are we in a couple years with our addiction to business class like new york and paris, $18,000? >> good question, but the market in the last week or two, it is a different business model. physicists appeared on north american atlantic and trans-european as well. people will not pay premium on one or two hour flights.

applicant the vast majority, below airfares sustain service. jonathan: every time we speak there is always a sales pitch. this talk about immigration and the new government. you complained about it for so, so long. what do you want to see happen? it is the stupidest, dumbest economic activity. to me, the biggest trading bloc

in the world. the european union, most intelligent -- the european union. of course, more on this. and the remarkable situation in the u.k.. to want to work in the service industry. we couldn't get -- for european or non-europeans because they want to take back control of their border. they don't have much control, frankly they are fleeing persecution in france.

no labor policy, never mind the crazy --. lisa: michael, it is clear you have some pretty strong feelings about this, i can say that. this perspective is one of the biggest players in the united kingdom. how much, as things are now currently in place, how much have wages gone up on average for you? if you expect them to keep climbing, there is no change in the year. michael: we put a lot of pressure on wages. the challenge for a lot of businesses in the u.k., wages haven't gone up. from morocco and turkey, we can get a decent for those guys to work in the u.k..

but all of them are applying -- your, making a fortune -- jonathan: i don't think -- anytime soon on this one. tom: but revenue numbers for the two advertisements. jonathan: i want to squeeze in a foreign-exchange question if i can. getting the numbers that we seem, the cost in u.s. dollars, how do you adjust for that story? michael: thankfully, -- 124.

[indiscernible] significant benefits. on the dollar. 25%. aircrafts -- traffic -- 2023 -- oil. very well -- a lot of our competitors. on the dollar. jonathan: let's spend some more

time next time. you let me know. michael: europe is going strongly. jonathan: michael, thank you, sir, as always. tom: sardinia to dublin, why are we doing this? i'm looking at $145 round-trip. it is a steel. jonathan: futures positive 1.4%. this is bloomberg.

>> we know what the fed is looking at, they are looking to labor market. it is going to come at the expense of labor markets.

>> i look at that economic projections, they seem almost fantastical to me. >> the economic impact of most of the tightening. announcer: this is john -- bloomberg surveillance with palm keene, jonathan ferro and lisa abramowicz. tom: on the and television, we have found a bowl. she will join us in a moment. recent headlines, the pound doesn't move. jonathan: there is a lot going on here in the u.k., and we will also hear from the bank of england. lisa talked about this in the last few hours. we will hear from the chief economist about nine minutes from now tom: one that will be interesting to hear. what is so important to me is that is not just about the united kingdom, it comes right over the united states. the hungary moments ago, 13% vs.

an estimate of 12%. we are going to see a lot of that. seeing that across a range of currencies. can we respond to it? at the moment, yes, today is a different story, but the dollar has been so dominant. tom: charles evans beginning to frame what if and bill dudley saying no, it is an overshoot. it is a simple as that in the u.s.. jonathan: that is the best case. many unemployment hits 4.5%. as the best case now, tom. that just tells you how much things have changed. tom: straw a break to it right now.

what is so important here are the dynamics of how fast we are moving in yield. lisa: was have been you talk about the united kingdom, the biggest sellout ever in five-year bonds over at united kingdom. in the spread market, and the corporate debt market, the reason why some people are saying this could last longer, the fed is not going to blink and if they were to put out a bit more dire projection of what to expect from the u.s. economy, perhaps people would understand that. tom: make a joke about it, but lisa is serious about the options. they didn't go well yesterday. why is that important? lisa: it is important because there isn't a screaming demand that came into play even if yields rising, even if people were getting income and even if you see consensus across wall street go to the short end of the yield curve. this is the further upward yield

of a 10 year, further downward. how much do we have conviction mind? that seems to be what is happening today. suddenly, people are coming back into bonds, which is this question of how does the fed do its job? tom: i am going to good for 10 year yield. skyrockets. this the movement in the inflation-adjusted yield impacts all of the data. jonathan: yesterday we closed at the highest level since 2010. we bounced back from the lowest of the year on the s&p. talked a lot about that dollar strength instead of weakness. tom: it is interesting to see.

important conversation. she is in the trenches of what do you actually do? victoria, you say no to cash. why? victorino: when we talked a couple weeks ago, we felt like we could get some inflection points and that would be an opportunity to go in and shift the portfolio a little bit, so that is what we're doing. we are utilizing that cash into our portfolios. i am not a raging bull at this point, but i think you can take a decent side of your portfolio and start moving it up again as we are probably getting closer to the bottom. we hadn't seen a lot of those metrics that people are looking for. we are also not in there trying to --. we think some of the events like we have seen this week and start

building a more position portfolio. jonathan: does that mean buying banks? victoria: we are not buying banks, but we are buying credit cards. we are buying visa, american express. we are buying some of the energy names, too. we have added quite a bit. we have added exxon mobil, valero, added a lot to those names. and even more typical names like cvs. we think there is an opportunity in fourth quarter for a company like ups as well. lisa: what about facebook, google, amazon? victoria: this highflying tech names, we got to be careful. we have some exposure, but it is not an area that we are adding to right now. i think you have to be very

careful on those because there is probably more downside if you continue to go higher on those. apple is probably a safer bet at this point in time. they just closed out their fiscal year over the weekend. from a we are seeing, they had a pretty strong year. a lot of people are waiting for apple to make the turn. i'm not sure we see that with the earnings coming out after the quarter ends. lisa: the torrey, i don't understand your parameters. the bullish sentiment that we year on the fringe of the shipping, what is underpinning your conviction that we get us close to a balance? victoria: we think a lot of it has to do with momentum we are seeing, the latitude signals out there. you look at a split cost ratio. we are surprised it isn't higher than where it is, but we want to

see it continue to go higher. we are getting close to where we think we need to be. tom: clients are absolutely shellshocked at the news flow, all of you want this. it comes down to the dynamics of unit and price. how important is revenue in this earnings season? victorino: it is extremely important because it is going to tell us what the markets look like. what did we see that we talked about last week? quality. quality of earnings and quality of balance sheets. it comes down to what those margins look like and the expectations of those quarters have come down from north of 9% and north of 3%. but i still think they are going to be strong enough to hold onto the market until the stagflation takes over.

tom: john, victoria's next committee happens to be in the state of alabama. texas a&m, that is hope -- happening october 8. you think we could make it? victoria: let's go, you all come on down. jonathan: i feel like victoria was putting it on right there. that would be fun. lisa: actually, y'all is a really good sort of gender-neutral. y'all. tom: on the upper west side. lisa: we should try to incorporate that into "bloomberg serveillance: early edition" -- bloomberg surveillance. yell take a look at those markets. jonathan: y'all take a look at those markets right now. higher on the s&p 500 makes you

wonder if that is what we are going to focus on in the weeks and months to come. bob michele and jp morgan pushing back. lisa, we are going into a recession and we have blown up a decades worth of low interest rates. where are the bankruptcies? when do they start to pick up? lisa: some people say they won't be has money because companies have termed out their debt. that only worked in the middle of next year when there starts to be a pressure point in terms of refinancing. i'm surprised there isn't more of a selloff in high-yield. the highest bill going back to 2009 in the treasury yield component. in my yield, it is not that

extreme, and that raises some questions. jonathan: something like that, before we think about stepping in. wait for it. lisa:lisa: 9.5% for high yield, which people think looks pretty good, but he says it is going to get better. jonathan: wait through the pain. that is the message from some people, at least. tom: 1.50 10 year real yield when you've got massive impact as you go up to the 2.05 level that we talked about this morning. it is unimaginable if you have a 10 year real yield the effect on the corporations. jonathan: it is turnaround tuesday, everybody. for the markets, anyway.

nothing sticks. you know the story here. lisa: no one said that. jonathan: people say that every day. every day. tom: wednesday is conviction wednesday. just conviction in our beliefs. jonathan: i believe we will be here tomorrow. lisa: [laughter] jonathan: this is bloomberg. lisa: up-to-date with news from around the world, hurricane ian threatening to become the worst storm to hit and but in more than a century, now a more cap -- powerful category three storm. it could hit florida as early as wednesday with top window more than 130 miles per hour.

more than 300,000 people are expected to evacuate. the dow is higher today after hitting a record low. sterling could fall the parity with the dollar. the bank of england indicated it may not act before november rising currency. germany expects sabotaging the nord stream pipeline that carries russian gas to europe. german security official for bloomberg the evidence points to a violent act. the operator of the pipeline call the damage unprecedented. vladimir putin's invasion is hitting russia's economy. putin has called up 300,000 men to fight the war in ukraine. it will take it out 1% of the active workers from the job at a time when there are few candidates to replace them. some of the drafee's families

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>> the federal funds rate to the 4.5% by the ending of this year. i would note almost as many participants down 4.25% by the

end of the year numbers. jonathan: good morning, the market as it back on the s&p. . yields lower by 12 basis points. coming very, very close to 4%. target yields, the highest level since 2017 yesterday. the highest since august 2007. tom: i'm glad you bring this up. the significance of the 4.00, i'm not sure. it is not that big a deal, am i right? jonathan: it is significant in the sense that many people bash back on june 14. tom: are we framing 5% now?

who knows. tom: we are humble, we are waiting for conviction wednesday. one conviction we have is the high ground on the analysis with china. the china book is absolutely definitive. the granularity of china, featured in foreign affairs magazine, the weakness of xi jinping. how hubris and paranoia threaten china's future. a courageous article without question putting the author at risk. he talks in there about -- excuse me, she talks in there about predatory and reputation as the only driving force of leadership. we overestimate china's ability, or is he just a part of the sheen that makes pedigree and reputation dance?

>> i think that what he has been doing is making the machine play for him. the party constitution, replacing senior officials, party officials with people. he is building the system around himself, which of course, helps for a while, but as you go along, as the chinese economy faces bigger challenges in the future, china's economy is xi's economy and any downturns, any problems are going to be associated with xi. it could cause a lot of problems down the road. tom: tell us the party congress leaders -- what is the nuance distinction that we need to study? leland: i think people are looking at this for signs of trouble and i think that is the wrong way to look at it there is this idea that it is a pivot

point for economic policy, and i think both of those are wrong. maybe you see tweaks to covid. maybe you see a little more stability in a year. we have had a paradigm shift in china, the economy in china, the governance in terms of the playbook. these are the challenges that he is going to have to deal with. i think while we are looking at what he does with officials just under him, how would you lay the groundwork for a world after xi? lisa: where is the currency sit in his new regime given that we have surpassed that onshore u.n. level and continued to go further? how much do they want to push back? how much will this administration allow a weakening in the onshore u.n. at a time when they have to be concerned about inflation, they have to be concerned about growth?

>> there are a lot of concerns. inflation is one of them, but not the biggest. there are limitations to what they can do. and so the major focus right there is looking at a party of congress. there is a preference not to have seven and eight broken. you break back, signifying that maybe china under covid zero is worse than china under code. they don't want any runoff evaluation, they don't want rapid appreciation. there is a limit to get that is going to depend on how long the dollar is strong. lisa: earlier this year you said we could see sub 2% growth in china. they are seeing that as a more realistic type of assessment versus the 5% target of a herd

earlier in the year. where do you think will end this year, and where are we headed next year for chinese growth? leland: a lot of it depends on what the narrative can be spun around covid zero. are they in store for bay lockdown this winter, which is very possible. recently talked about 2% growth being a very strong possibility is that there is this idea that as soon as lockdowns in the spring were suppressed, we don't see any of that. there's tens of thousands of firms over the course of the past year. until the covid zero nightmare is over, they are not going to borrow, not going to invest, not going to hire. indeed, all of those metrics will be worse. to know the future, they need to get rid of covid zero. jonathan: to some extent, these are some of the characteristics

of the recession. i wonder if that is easier done than just saying that covid zero is over. leland: if that was all that was happening, i would think yes. the reality is that you also got structural deceleration. property has been taken out as a growth driver going forward. he was going to have much slower growth, completely independent. there are not replacing growth drivers. they are trying to conduct a whole bunch of very big structural changes to the economy, but they are not playing with the kind of policy that will rise. you got this very difficult situation shifting away, but you don't have immediate new growth drivers. you are not going to see a spike up in the years to comment. you are going to see a new era of much slower growth. jonathan: thank you and

congratulations. phenomenal call earlier this year. when people are talking about maybe a break at 2% gdp growth at the start of the year, some people thought he was not. -- nuts. lisa: now they are moving in his direction. what if they move in his direction with the next decade? jonathan: credit suisse is going to join the show with us shortly. what a messy couple of weeks it has been. futures back up on the s&p. from new york, this is bloomberg.

jonathan: 2022 at the close yesterday on the s&p 500, bouncing right back up. 1.3%. the nasdaq 100 up. yields are lower. -11 basis points on the tenure. the dollar is weaker in line with that. sterling, they turnaround.

some fascinating work, what is the clearing on u.k. asset prices, in which investors would be willing to fund the u.k.? most people would agree with him, at the market is itself already attempting to answer a record low in exchange rate and a 2% rate hike and a $.60 terminal raise from the bank of england. but if this is not delivered, further reported inflation and further tightening, a vicious cycle. part of that vicious cycle could become quite self-fulfilling. tom: absolutely on trade. john, 1992, that gets your attention, which is a good time to check in with the chief foreign-exchange strategist at credit suisse.

i know you studied this as well. a nation's lowest signaled by the balance. there is all this mumbo-jumbo on financial tv and radio and all that, which ignores the obligation the nation has. how naive is the truss administration on the state of the current account balances in the united kingdom? >> i think they made assumptions that the market would like the policy moving forward. you could argue the overlook the underlying conditions for trade. already above 8% gdp. add to that enormous fiscal expansion and clearly it is very difficult to sustain the capital inflow that the country needs if

you have interest rate like the u.s., for example. jonathan: we talked about this in america, between america. is there an awareness and the united kingdom that you observed in the city over the twin deficit state of the united kingdom? >> overall this year, the interesting feature has been the lack of focus. not just in the u.k.. but in the u.k., this is now a very pressing issue. i think the market clearly understands what is happening. that is why is requiring the ships on the bank of england. i don't think the u.k. government has prepared the u.k. public for that. at some point we are going to square the circle.

the u.k. government will have to come out plan that involved some form of the skull tightening intern. some areas of the economy need to see tightness on that front. we will have to see how that works out. but this going to be a rough couple of months. jonathan: one thing we do on this program is redraw the distinction between a market adjustment sterling, i really yields to attack deficit and something much, much worse than that, a negative self fulfilling downward spiral. the former for the latter, because i'm not sure many people are on board with the idea just yet, but it is a crisis of the latter. perhaps it is just performer. much higher yields, and here we are. >> the problem is the bank of england base rates. the problem is the bank of england has consistently failed

to meetas priced in. even before the government announced its latest measures. so the track record is not good there. when you compare that to other central banks, where they are well ahead of the game very quickly, specifically referenced what the markets are priced in at, something that they have been noting and trying to keep up with, that is a very different message than what we had from the bank of england. that is a big problem in a world where we have choices. it has put the u.k. in a bad light. jonathan: if there was a bigger credibility deficit right now, is in westminster or in the city? >> of the treasury and the government, the bank of england, it is lagging monetary policy. they both have a problem in

terms of the financial market standings. they both have this problem irrespective of the competitor nations. so trying to keep u.k. capital in the u.k. is a problem, let alone trying to attract foreign capital into the u.k.. but the bank of england very clearly has rates well above the fed price rates, for example, in the u.s. i don't think they have time to wait for this to come through. lisa: what is your conviction level in terms of levels? before something steps in that is a little bit less market discovery. >> somehow the bank of england did by time with a statement yesterday. i still have my doubts about the

fiscal plan. i assume in the weeks to come, some form of early insight into what kind of plan the government has will show to financial markets. that function changes very quickly. lisa: how much is this a dollar story? a lot of people have been saying this is the final story of the dollar ascendance and that we are starting to see some kind of washout. >> this clearly some important u.k. elements and what is going on here. i think that is the real problem here as far as the u.k. government is concerned. it is very difficult to just in

this down. tom: where is the trade in the pacific rim right now? shahab: we are still looking at if the dollar gained against the chinese currency. tom: 7.50? shahab: we are looking at 7.25 at the next step. tom: is that destabilizing for beijing or is it something they really don't care about? shahab: i think at the moment, there is a sense that because the chinese economy is not doing so well because of a number of issues, there is a sense of panic. jonathan: do you think we have seen the low-end? shahab: i think we could go

lower than that. it is very, very important now. the interest rates will go where they need to be. unless that happens, i don't think we can go to low. jonathan: the next scheduled meeting for the bank of englan., the chancellor met with asset management in the city of london today. just got a tweet from the treasury in the u.k. the government commitment to fiscal sustainability. next month a package of returns to try to incentivize investment. one thing that has got lost in a lot of the conversation what the

u.k. government has done over the last couple of weeks, and rightfully so, prioritizing -- in the u.k., and for very good reason. it makes a much stronger u.k. economy. lisa: he was pretty adamant about this that there are some really good aspects that will support the sustainability of the nation. is just, do we have the time to wait to put out those proposals? i don't know. jonathan: and will the market cooperate more broadly? mike wilson of morgan stanley. we will break down this equity market with him at 9:30 eastern time.

anyway, we will catch up with luke if he still wants to join us. sterling-denominated assets. lisa: can i just bring this to you? there was a story today on bloomberg talking about how electric blankets, the sales of them are surging in the united kingdom. jonathan: that is no joke, is it? lisa: no joke. people are preparing for less heat and saving money on those bills. jonathan: we can joke about some of this news, but that is no joke. europe is going to a very difficult winter. the nord stream 1 down, no hope for some people that it comes back online. lisa: how do you have conviction and how is this going to play out? tom: i want you to watch. jonathan: is that bloomberg

surveillance? tom: it is. lisa: what is that gif? hey kids, how is it going? jonathan: that is insulting to gen z, isn't it? good marketing. futures positive from new york. this is bloomberg. lisa: keeping you up-to-date with news from around the world, hurricane ian has turned into a powerful category three storm as it takes aim at florida. it is now on track to become the worst storm to hit tampa and more than a century. they could arrive wednesday morning with wind of up to 140 miles per hour.

goldman sachs has sharply lowered its oil price forecast. they predict $100 per barrel, higher than today's price, but below the previous forecast of 125. senate democrats have proposed a short-term funding bill aimed at avoiding a government shutdown. congress must have a decision by midnight, but the package includes a measure to -- energy -- some republicans and democrats. leaders of both countries are anxious to avoid a shut down a little more than a month before midterm elections. workers at sentences for international airport have gone on strike for higher wages. they are telling travelers to bring their own food so they don't have to cross the picket line. the unions as most of the workers have now gotten a raise -- not gotten a raise in three years. the airport is not commenting. global news 24 hours a day on air and on bloomberg quicktake.

powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

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>> committed to using stores to bring inflation back down. last week, we took another -- to move monetary policy accommodation. 75 basis points. we are continuing the process of reducing assets off of the balance sheet which also reduces accommodations. tom: without question, the mathematician of all --. i really, really listen to the dynamics she displays in her english prose. but we are going to do here is a little different.

lisa, the boots and the yellow rain thing standing on the surface in florida, i think i could see it. lisa: me in florida. tom: a little different now. brian k sell abound, he wrote the high ground on whether in business. he has been dedicated for years. what gets my attention, it is 45 miles per hour and suddenly, 125, category three. is there more momentum to florida? >> potentially -- going across the very last part of cuba right now. i think in the next couple hours, we see it crashed down. tom: one of the things that lisa

mentioned was every single guest on bloomberg surveillance has brought something -- bought something down in florida. they are all on the coast, all these beautiful condos. has there been any change to the coastline real estate that is affected by these historic storms? they haven't moved back from the shoreline, have they? >> that part of florida doesn't always get hit. the idea that this has never happened to us before, so it is not going to happen now. you have to go back probably to 1921 to get a storm of this strength and this power. tom: wait, you are serious. we have to go back to humphrey bogart in that hurricane movie? >> yeah, key west. tom: are you kidding? wow. lisa: that is one of the big concerns that people have, especially given some of these areas that have built up.

how much with the damage potentially be if they got a hurricane can 12 we saw in 1921 -- akin to what we saw in 1921? >> it is exactly like you're talking $60 million to $70 million worth of damage. lisa: at this point, how many people are prepared for this and longer-term, what does it these terms of development, in terms of recognition? this is going to be a more frequent event, is it? >> this is a conversation the united states has to have on the waterfront, we are seeing this in boston, in miami, virginia, all of it. tom: tanned but is just one example. so much for tampa along with

others, a boom economy. it is going to be a compare and contrast. there is no question about it. what does tampa have to do to not have some of the sadness is that were observed in san juan in recent weeks? >> i think in some parts, the infrastructure on the mainland is a little more than the infrastructure in puerto rico. that is why you are dealing with the resources of the entire country and they should be going to puerto rico as well. i think it is mainly a question of infrastructure and how quick you can bounce back. on the mainland, a little bit more robust. the transportation system on the mainland is a little than more robust. it is just easier to get to south florida. lisa: can you give us a sense of the trajectory for the rest of the hurricane season?

do you get the sense that this is just going to be an exceptionally active one, or is this part for the course? >> it is very quiet for august but now kind of picking up speed through september here. the only interesting thing is the western pacific. the eggnog is going to get hit today by a very strong storm. japan is going to be had by a few very strong storms. those two pockets coming into focus here. tom: thank you so much. this storm that we have underplayed in the northeast which is very serious. i don't make jokes about it, lisa, there are some real hardships here. but for brian to say we have to go back to 1948 with humphrey bogart, this is not funny, but that movie caught the violence that is real. lisa: and it comes at a time when a lot of people have moved to florida.

florida has seen a huge amount of inward movement. you have these financial centers and stories about it today about how they are all shutting down in preparation for the hurricane. how does the weather deal with some of the immigration they have seen and the buildup that you rightly pointed out, especially on the shorelines? that is going draft to be an increasing question in pressure. to date, you haven't really had to deal with that. tom: david, who is always a good friend of the program is living in florida. he says is it too late for tampa to do anything for ian accept evacuation -- except evacuation? i think it was in 1995. lisa, let's go over to david with a better tone on conviction. i'm looking at the real yield.

a little better than the fear yesterday. lisa: can we talk about that fear? i like to do that, but it went past 1.6%. this was a pain point. i was speaking to a number of strategists, talking about how that would be kind of the breaking point for markets when we got there. and what does that mean, where is the threshold at a time when people have gotten used zero real yields? tom: on the bloomberg terminal, you can do the math, you can see the data. some form of moving average of about 2.05%. lisa, i don't think people are really modeling out 2.05% except will dudley and a few other selects. lisa: exactly. i was speaking to -- at wells fargo and he said what about 3%.

no, that is impossible. and he is not alone, most people agree with him. tom: we are going to observe the auction. what am i looking forward to this afternoon? lisa: a successful orderly auction, getting the highest going back more than a decade. tom: never have i heard such an interesting, nuanced discussion. the dow futures up to .79. stay with us, this is bloomberg.

jonathan: life and new arcs -- live from new york city this morning. come down to the open starts right now. -- counting down to the open starts right now. live from new york, >> there has been no place to hide. stocks keep going down.

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